India Special Report: The Wealth Tax

The Indian Wealth Tax is, you guessed it, a tax on the rich.

At the end of each financial year, on the 31st March, every individual, company and Hindu Un-divided Family is assessed. Anyone who possesses more than INR 1.5m in net tangible assets will be subject to the tax. As of 2008, the Wealth Tax is 1% of the High Net Worth (HNW) assessee’s value, over and above INR 1.5m.

The Indian Wealth Tax is, you guessed it, a tax on the rich.

At the end of each financial year, on the 31st March, every individual, company and Hindu Un-divided Family is assessed. Anyone who possesses more than INR 1.5m in net tangible assets will be subject to the tax. As of 2008, the Wealth Tax is 1% of the High Net Worth (HNW) assessee’s value, over and above INR 1.5m.

So for example if your net worth is 2.5m at the time of assessment, you will need to pay tax on the ‘excess’, which will be 2.5m – 1.5m = 1m. The tax rate will be 1% on that 1m, meaning that you would be due to pay 1% * 1m = INR 10,000.

What are Tangible Assets and How Are They Valued

The Income Tax Department, part of the Ministry of Finance’s Department of Revenue, is responsible for collecting the Wealth Tax.

The tax is designed for non-productive assets, so if an asset is used for commercial purposes, such as commercial property, then it is excluded. Bearing that in mind, tangible assets are defined to include houses, land & other property, cars, jewellery, yachts, boats, aircraft and cash in hand up to certain limits.

The Income Tax Department requires that assets are valued based on the principles defined in the Wealth Tax Act, which can be viewed on their website. You will need the help of a qualified accountant to ensure that your tax returns are filed correctly. Returns must be filed by 31 July of the next year for individuals, or by 31 September for companies.

In particular, you or your accountant needs to be clear on how the debt value of the asset is quantified. Let us say that you have bought a second property using a mortgage. At the time of the assessment, the value of the property minus the outstanding value of the mortgage will be the figure used for the assessment.

Although the tax is for individuals or Hindu Un-divided Families, it will also apply to the assets of partnerships or association of persons that you have an interest in, for any asset that similarly qualifies for the Wealth Tax, and in proportion to your share of that entity.

Indians must also pay tax on assets that qualify but are situation outside the country.

Exemptions to the Wealth Tax

You should be aware that the tax is only applicable to the second property onwards (it does not apply to your primary residence), and furthermore the tax is only applicable on land larger than 500 m2.

If a property has been let out for more than 300 days in the previous year, it is also exempt.

If your car has been hired or is used for working purposes, or if jewellery is held as stock in trade, then it is excluded from the calculations.

Financial assets such as stock or bonds are further excluded.

Foreigners in India or foreign companies are only required to pay the tax on assets within India.